HNA's Avolon group to acquire CIT Commercial Air, creating world’s third largest aircraft lessor
HNA Group's remarkable spending spree continues, with the announcement that its Avolon subsidiary will acquire CIT Commercial Air, the aircraft leasing arm of CIT Group.
The USD10 billion deal will create the world's third largest lessor - and they may be more to come yet.
Avolon itself was only recently acquired by HNA Group, with the USD2.7 billion purchase agreement being finalised in Jan-2016, via Bohai Capital Holdings.
Avolon is now the core aircraft leasing brand for the HNA Group. Including assets from Hong Kong Aviation Capital, Bohai Capital and several smaller HNA Group leasing firms, Avolon has a fleet of nearly 250 aircraft and almost 200 more on order.
- HNA Group's Avolon subsidiary is set to acquire CIT Commercial Air, the aircraft leasing arm of CIT Group, in a $10 billion deal.
- The acquisition will make Avolon the world's third largest lessor, doubling the size of its business.
- Avolon's fleet will consist of 511 aircraft, with an additional 349 on order, valued at over $43 billion.
- The acquisition will expand Avolon's customer base to 154 airlines in 61 countries, reducing risk and providing opportunities for yield improvement.
- The transaction will be financed through a combination of Avolon's cash, new equity from Bohai, and acquisition debt financing of $8.5 billion.
- The acquisition highlights the rapid expansion of Chinese players in the aircraft leasing market, with Chinese-owned lessors increasing their fleet from under 500 to over 2200 aircraft since 2007.
Avolon will double in size with the CIT purchase
The CIT Commercial Air acquisition will again double the scale of the Avolon's business. The unified portfolio will comprise an in-service fleet of 511 aircraft, along with a managed portfolio of 50.
Avolon and CIT combined have another 349 aircraft on order. This includes 282 new/next generation aircraft, including 195 Airbus commercial jets - A320neo family, A330neo and A350 - and 87 Boeing jets, comprising 59 737 MAXs and 28 787s. The entire portfolio of 910 aircraft is valued at more than USD43 billion.
The combined portfolio will also expand Avolon's existing customer base by 69 airlines in 20 countries, bringing the total to 154 customers in 61 countries. Geographically, the company's customer base will now be split one third each across the Americas, Asia Pacific and Europe, Middle East and Africa (EMEA) regions, reducing risk and providing opportunities for yield improvement.
Combined Avolon and CIT Commercial Air fleet metrics*
| Total fleet (in-service, managed + on order) | 910 aircraft |
| Fleet value | USD43 billion + |
| Owned and managed portfolio | 561 aircraft |
| Aircraft orders and commitments | 349 aircraft |
| Average fleet age (in service fleet) | 4.6 years |
| Average remaining lease period | 6.7 years |
| Customer base | 154 |
The transaction will be financed through a combination of Avolon's cash, new equity contributed by Bohai and acquisition debt financing of USD8.5 billion, committed by Morgan Stanley & Co and UBS Investment Bank. The deal is expected to be completed during 1Q2017, following regulatory approvals and other customary closing conditions.
Despite Avolon being just six years old, it is already a powerhouse in the aircraft leasing industry. Avolon's management team - comprised of industry veterans from RBS - has rapidly developed the company's international footprint across key global leasing centres.
In addition to its headquarters in Dublin, the company has a strategic Asian regional head office in Hong Kong, and offices in Dubai, Shanghai, Singapore and the US.
The Avolon powerhouse has even grander intentions
The ambitions of Avolon CEO Dómhnal Slattery stretch higher still; and Mr Slattery has the industry's two leading firms - AerCap and ILFC, both of which control more than 1000 aircraft - in his sights.
Mr Slattery commented that the CIT acquisition is "not the summit of our ambition" but rather a "very important milestone on the journey."
Largest lessors by fleet (as at 07-Oct-2016)
| Lessor | Active | On order | Total |
| GECAS | 1630 | 270 | 1900 |
| AerCap | 1227 | 410 | 1637 |
| SMBC | 453 | 202 | 655 |
| Air Lease Corp | 278 | 373 | 651 |
| CIT Commercial Air
|
380 | 132 | 512 |
| Nordic Aviation Capital | 297 | 194 | 491 |
| ICBC Leasing | 318 | 173 | 491 |
| BOC Aviation | 265 | 218 | 483 |
| Avolon | 247 | 185 | 432 |
| BBAM | 399 | 0 | 399 |
| Aviation Capital | 260 | 97 | 357 |
| Macquarie AirFinance | 223 | 40 | 263 |
| AWAS | 240 | 15 | 255 |
China takes on a leadership role in aircraft leasing
The acquisition is also testament to the rapid expansion of Chinese players in the leasing market. Since 2007, Chinese-owned lessors have expanded their collective fleet from under 500 to more than 2200 aircraft, increasing their share of the domestic leasing market from under 10% to more than half.
Even the large and rapidly growing Chinese leasing market is not enough to satisfy their ambitions, and the massive international market contains further inviting targets for JV, portfolio acquisitions or more outright purchases.